March 2, 2012

Charles Goldman to Advisors: Be Paranoid About Your Business

Former Schwab, Fidelity executive warns SSG advisors at conference to avoid arrogance, focus on forming a vision for their firms and not to overlook power of wirehouses

Speaking at a general session of Shareholders Service Group’s first annual conference in San Diego, Charles Goldman shared his view of the advisor universe on Thursday afternoon, and urged every advisor to “be paranoid about your business,” and to not fall prey to its opposite, “arrogance".

He also said he had come to appreciate the importance of each advisory firm to have a “UVP”—unique value proposition—but urged advisors to focus on the “value proposition” part  of their mission.

The former Schwab Institutional COO and Fidelity Investments custodial and clearing president, now a consultant and board member of several charities in the Bay Area, said he had learned about the value of being ‘paranoid’ from his former Schwab colleague Debby McWhinney. And while he had long pooh-poohed the management mantra that every successful firm must have a vision or mission statement as part of its UVP, he had come to appreciate its importance in business.

He warned, though, that just having such a vision isn’t sufficient: advisors and most important “their staff need to be able to articulate” that vision to others, particularly clients and prospective clients. He made the comments in response to questions from SSG’s executive VP Dan Skiles (left), another former Schwab colleague (and Investment Advisor’s Technology Coach columnist; see Dan's latest column for IA at AdvisorOne).

Goldman, who joked that since he left the rarefied air of corporate America, he had to learn how to do his own PowerPoint slideshows, began his presentation by looking at “what’s really happening in the wealth management marketplace.” He proclaimed that for the estimated 16,000 RIA firms, “assets under management are back” to where they were before the 2008-2009 markets and economic crisis, and that RIAs account for about $2 trillion in AUM (citing Cerulli data) with those assets growing at a CAGR of 10%.

He noted that assets are concentrated, however, at the largest RIAs. He also sought to dispel two myths: that every advisor should focus on the high-net-worth and that the wirehouses were on their deathbeds.

“The average account size at Schwab and Fidelity” is between $300,000 and $400,000, while the average household account is about $800,000, he reported, and that relatively lower-net-worth Americans represent a significant market opportunity for advisors. That brought up another myth of sorts: that advisory firms need to grow larger to survive. “Scale is being brought to you by your custodian” and by other advisor partners, such as technology firms, a model which he said was unique among American businesses, and which allows advisors to efficiently and profitably serve those relatively lower-net-worth clients.

As for the possible demise of the wirehouses, Goldman admitted that independent RIAs and broker-dealers were ahead of the wirehouses in growing AUM, but that the wirehouses “had learned from independents” the value of providing fee-based and even fee-only services to clients and that they still held the majority of AUM in the country.

However, one of the wirehouses’ problems is their size: “At big firms, most leaders are spending only a quarter of their time” on truly valuable activities to grow their businesses, and urged advisors not to make the same mistake in their own time management. When asked by Skiles what he would do if he were running a wirehouse, Goldman said simply, “I’d make it very hard” for brokers to leave, since the periodic movement of brokers from one wirehouse to another made it more difficult to sustain a profitable enterprise.

After mentioning that his departure from Schwab occurred after a "disagreement in the executive suite about the direction of the company," he touched on the issue of whether the SEC will impose a universal fiduciary standard on all advice givers, at a conference where regulatory and compliance issues were prominent, Goldman spoke with conviction (and also recalled in passing that he served a stint on SIFMA's private client group, where he recalled, "I wasn't very popular"). He argued that “it would be criminal and unfortunate” if such a fiduciary standard were to become rules based rather than principles based, as it is and has been for RIAs. He also spoke encouragingly of the efforts of the Institute for the Fiduciary Standard to promote such a universal standard.

Read full coverage of SSG's 2012 Conference in San Diego at AdvisorOne.

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